Roth or not to Roth

[skeelo1811]

Just curious what peoples take on the Roth vs. Traditional contributions. Once Roth contributions were allowed I converted 100% of my future contributions to Roth in addition to my personal Roth account (So in essence I'm all in on Roth). To me it makes no sense because of tax implications in the future. As employees of this sinking ship do we really trust our government to lower taxes in the future or make things easier on us in the future. I'm not looking for someone to talk me out of my position just curious other peoples thought process on this. Am I being narrow minded or do I have tunnel vision on this?

[thekirk]

Here's the way I look at it: I've got 14 years in military service now, but I just started a career in federal service as a DA civilian so I'll still be contributing to the TSP for the next 30 years or so until I retire. The way I understand it when I was looking at traditional v. roth, when you withdraw later in retirement if it's traditional you'll be taxed at your current tax bracket. For me, 30 years from now there's a good chance I'll be in a higher tax bracket, so if I went traditional I'll be paying more on it later versus what I pay now with putting it into the roth instead.

[ngood2345]

I have always put as much money into ROTH instead of IRA. I look at it this way. For example, I put $100,000 in ROTH, it has grown to $500,000. So now I have an extra $400,000 in tax free money to spend. With a ROTH you don't have to take out MRD, minimum required distribution. However your heirs will, but it will be with no taxes.

In an IRA, I would have to pay taxes on all of the $500,000 and at 70 I have MRD. My heirs will also have MRD and they will pay taxes.

I am trying to leave all of my ROTH money to the kids.

Did I miss something?

[benhem612]

I put enough in the regular tsp to get the matching and I put the rest in the roth. No need to throw away money. That said I think it depends on your budget and if the tax hit up front now wont be too burdensome then go for it.

[Aitrus]

IIRC, even if you put only 5% into Roth, you'd still get the matching. The matching funds would go into the regular TSP and be taxed upon withdrawal, but I don't recall any requirement that the 5% you put in has to go to the regular TSP.

[Pockets]

IIRC, even if you put only 5% into Roth, you'd still get the matching. The matching funds would go into the regular TSP and be taxed upon withdrawal, but I don't recall any requirement that the 5% you put in has to go to the regular TSP.

Do you have this in writing somewhere? I was really curious so I called the TSP number to ask this question and it seemed like that was NOT the case. I fear that the individual I was talking to did not understand my question.

In short, as you put it, if I convert my minimum of the 5% contributions to ROTH I will still get the matching 5% but it will be in the Traditional no matter what. Correct?

[thekirk]

IIRC, even if you put only 5% into Roth, you'd still get the matching. The matching funds would go into the regular TSP and be taxed upon withdrawal, but I don't recall any requirement that the 5% you put in has to go to the regular TSP.

Do you have this in writing somewhere? I was really curious so I called the TSP number to ask this question and it seemed like that was NOT the case. I fear that the individual I was talking to did not understand my question.

In short, as you put it, if I convert my minimum of the 5% contributions to ROTH I will still get the matching 5% but it will be in the Traditional no matter what. Correct?

Yes, I believe that is correct. As soon as I started on the federal side I changed the default 3% traditional to 0% Traditional and 5% Roth, I still get the full agency matching contribution to my 5% but their matching contribution goes into my traditional not my roth.

[privacylee]

IIRC, even if you put only 5% into Roth, you'd still get the matching. The matching funds would go into the regular TSP and be taxed upon withdrawal, but I don't recall any requirement that the 5% you put in has to go to the regular TSP.

Do you have this in writing somewhere? I was really curious so I called the TSP number to ask this question and it seemed like that was NOT the case. I fear that the individual I was talking to did not understand my question.

In short, as you put it, if I convert my minimum of the 5% contributions to ROTH I will still get the matching 5% but it will be in the Traditional no matter what. Correct?

From https://www.tsp.gov/PlanParticipation/E ... index.html

"If you are FERS, your Agency Matching Contributions are based on the total amount of money (traditional and Roth) that you contribute each pay period. All agency contributions are deposited into your traditional balance."

I read this to say that you can contribute to traditional OR Roth and you get the matching either way. The matching funds will only go to traditional. Feel free to correct me if someone else reads it differently. Thanks.

[skiehawk11]

I do a Roth TSP to matching, max out a personal Roth IRA and then bank as much as I can towards maxing out my Roth TSP (buying a house puts a drain on resources for some reason).

And that is my understanding as well privacylee.

[benhem612]

Thanks for the heads up that the Roth gets the matching anyhow! I was always under the impression I had to be in the regular to get it. This helps a lot! I value this site a great deal and marvel at how smart some of you folks are. Thank you for the time you put into helping educate folks.

[Aitrus]

IIRC, even if you put only 5% into Roth, you'd still get the matching. The matching funds would go into the regular TSP and be taxed upon withdrawal, but I don't recall any requirement that the 5% you put in has to go to the regular TSP.

Do you have this in writing somewhere? I was really curious so I called the TSP number to ask this question and it seemed like that was NOT the case. I fear that the individual I was talking to did not understand my question.

In short, as you put it, if I convert my minimum of the 5% contributions to ROTH I will still get the matching 5% but it will be in the Traditional no matter what. Correct?

Looks like everybody came through with the data, so I won't repeat it. If in doubt, you could always do all your deposits into the Roth TSP for a paycheck see what happens. If it doesn't work right, you can just switch back. But if it does work (and it sounds like others are already doing it), then you're golden.

[kaclemen]

I always max out ROTH every year. With that said, your pre-tax IRA will likely have more leverage to grow faster and accumulate much more in the long run but that tax deferred benefit will certainly cost you more in the long run in cheddar to the government.

It's interesting bout of tug of war in my opinion.

Roth ($5K max/yr at least in my situation) is your way of paying government now potentially running risk of leverage and compounding.

Traditional ($13-18K/year depending on ROTH contribution) is governments "incentive" to let you stash away much larger sums of money in hopes they get even greater piece of the pie later on.

Assuming you put max Roth ($5K) and remaining max allowed in traditional ($13K) for 25 years and assume 5% rate of return. This assumes $18,000 constant max for next 25 years (won't happen but for the sake of using example)

Roth account yields ~$250,567.27
Traditional yields ~$651,474.90 (even at extremely aggressive tax rate you come out significantly ahead)

Just some food for thought. I simply contribute to both as a hedge against the other. Probably leaving some food on the table but it somewhat takes away the gamble of higher taxes in future (taxes go through the roof in future, I'm at least somewhat protected with ROTH account)

[Eliaj]

Roth conversion ladders are also something really nice to look into. There are some really nice tax incentives if they are still a thing.

[ngood2345]

"I always max out ROTH every year. "

Actually the ROTH max for you 401k ROTH account is $18,000 + catch up if 50 or older not $5,000. Right?

[skeelo1811]

That's my understanding ngood.